Daily analysis 05.03.2013

Low volatility on EUR/USD is a result of investors' resistance to open new positions before the ECB meeting. The final PMI readings will not probably change the market sentiment. The Polish zloty, similarly to euro dollar, is waiting for the Central Bank rate decision. The British pound has corrected a bit the recent slide, but the sentiment is still bearish.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted:

• Final services PMI readings from Germany, France and Euzo Zone
• 10.28 CET: services PMI from U.K. (survey 51)
• 11.00 CET: retails sales from Euro Zone (survey +0.3% m/m; minus 2.9% y/y)
• 16.00 CET: services ISM from the US (survey: 55 points)

Low volatility on EUR/USD.

There was a lack of moves on EUR/USD yesterday. However, the next day we managed to close over psychological support level – 1.3000. The resistance to further slide can be used for bulls to initiate the short term rebound, which is not suppose to exceed 1.3200 (the only exception is quite hawkish ECB statement on Thursday). Currently the medium term sentiment is bearish and any rise under 1.3200 should be used rather to open shorts then longs. Today's macro data will not suppose to set any direction to EUR/USD. The morning final PMI readings will not suppose to be significantly different from the preliminary data. Some “freshness” can be injected from the retail sales data from Euro Zone at 11.00 CET. If the reading is worse then expected, and the market will not slide (new lows on EUR/USD) then we can expect a diminishing selling pressure in the short term and therefore expect a short term rebound. On the other hand we still have to remember about the ECB meeting on Thursday. The majority of investment institutions expect that ECB will leave rates unchanged, but some claim that lower inflation and weak economy can spur some discussion inside the Central Bank regarding the cut. Any indication regarding more dovish policy will suppose to weigh on the common currency and lower the EUR/USD rate.

The British Pound.

Recently we had quite large moves on the sterling pairs. The British currency significantly weakened to its major counterparts in fears of triple dip recession, another round of QE and rating cuts. Despite the current depreciation many analysts expect that the trend will be continued. Thomas Kressin, head of European foreign-exchnage at Pimco in Munich told Bloomberg that “It is hard to envisage a scenario where we would want to be long sterling in the next six to 12 months”. The similar view is presented by John Taylor, founder and chief executive officer at FX Concepts in New York who claims that “bets that the pound will decline are among the company's largest so-called short positions. Analyzing the pound to zloty an investors should not only look at the GBP/PLN chart but also at GBP/USD. Recently we are pretty close to the 1.5000 mark on the popular cable. Breaking this level can open the path toward 1.4300.

Polish MPC in focus.

At the time of writing the analysis Polish Press Agency (PAP) published that, according to the Court and Economic Monitor, the January 25 bps rate cut decision was unanimous. We can see a slight zloty weakness after the message. In the last days some analysts has changed their minds and switched their prediction from the cut to the “unchanged stance”. I has already been pricing in, but the unanimous January decision increases slightly the odds toward the cut. More uncertainties before the meeting means that the reaction after the decision can be rapid (especially when the rate stays unchanged). The volatility can continue also during the press release and the conference.

Expected levels of PLN according to the EUR/USD value:

Technical analysis EUR/USD: the bearish trend is still valid and any rebound should be used to open shorts. The next support level is 1.2900-1.2840 (head and shoulder target, 50% Fibonacci retarcement level and 200 DMA). The comeback to the bullish trend is possible after moving above 1.3300 (currently low probability).

Technical analysis EUR/PLN: according to the technical analysis the break down from 4.1500 support is a strong bearish signal with the first target around 4.1200 and then the move toward 4.08-4.12. EUR/PLN also moved under 50 DMA and 200 DMA on Friday (selling signal). The alternative scenario is a rise above 4.1900 (low probability now).

Technical analysis USD/PLN: the base scenario is a move toward 3.24-3.27 (between 200 DMA and 50% Fibonacci retracement level). The comeback to the bearish trend is possible after sliding under 3.1100 (low probability now).

Technical analysis CHF/PLN: we are close to level (3.3700) that will negate the recent jump. The base scenario is a range trade again between 3.36 and 3.41. Shorts should be consider after sliding under 3.3300 and longs should be open above 3.41.

Technical analysis GBP/PLN: the bearish trend on GBP seems to be strong and any rebound not exceeding 4.90 should be used to open new shorts. The pivot point is around 5.00. Analyzing 5-year chart we can see that the target of the recent move can be set around 4.5000.